US Air to Address Creditors on Takeover plan

[BoeingBoy]

Which brings up the point BoeingBoy has been making... A 15-16 billion dollar offer is a boatload of debt. Whomever lends that kind of money has to be certain the combined airline would be profitable enough to service that debt.

You've summarized it succently. Even with equity investors providing the funds instead of debt, a lot of the new stock would go to them - leaving less for the unsecured creditors who normally get whatever they end up getting in the form of stock in the reorganized company.

Jim

 

[robbedagain]

personelly I hope that for US/AA sakes we dont merge but this entire thing is out of our hands. now I dont know how much if any of this is true, but a catering personing told me face to face the other day that according to the high ranking catering officials who have direct contact with DP "say that things are fast forward in the talks with AA" personelly I doubt it but Ive been wrong before. In the end the creditors are the ones who will decide if AA will be a standalone or merger. And from what Ive see onthe internet, several analyists say they dont like AA's stand alone plan

 

[FlyUs]

It will come down to how much debt the combined structure would have to end up being saddled with to pay for US buying AA, and the mess with multiple unions as well. Parkers other option would be to merge with, but keeping the companies separate until AA is out of BR and offering stock in the new company to the creditors. Adding true East Coast hubbing from US is the only thing that seems to bring a lot to the table to AA, something they can get without a merger. I'm not sure how the fleet/engine mix works, I'll let someone else decide whether that is a + or -. The real question is whether a combine AA+US scenario is the best competitive solution for AA or not. If AA can exit BR and recapitalize with an IPO without US and quickly implement its business plan, I think that puts US at a competitive disadvantage, meaning between UAL/DAL/AA/WIN/LCC, one of these carriers defaults for good within 3-4 years and without a merger, US would be most at risk..

AA would exit BR with much lower leasing costs and adjusted lease end dates, new fleets and cheap financing already lined up for the first couple of years when the Being orders start arriving, not to mention tying up a lot of manufacturing assembly lines at Being and Airbus. AA's unit costs will be the lowest of the five airlines above. The joint ventures will be in full swing with JAL now fully out of BR and running a lean operation. That sounds pretty good to me.

So then is AA better off independent, or just what else will US bring to the table.

Do you care to elaborate on how AA can add "true East Coast hubbing" without a merger?

 

[Mrs. McFly]

It is so hard to know whether to believe the hype, especially when it seems like some of LCC's issues may trump ours. I just wonder what kind of new troubles would arise from a forged combo and if it is really worth it.

http://business-news.thestreet.com/dallas-morning-news/story/us-airways-union-leader-recalled-amid-contract-vote/11467815

 

[damajagua]

personelly I hope that for US/AA sakes we dont merge but this entire thing is out of our hands. now I dont know how much if any of this is true, but a catering personing told me face to face the other day that according to the high ranking catering officials who have direct contact with DP "say that things are fast forward in the talks with AA" personelly I doubt it but Ive been wrong before. In the end the creditors are the ones who will decide if AA will be a standalone or merger. And from what Ive see onthe internet, several analyists say they dont like AA's stand alone plan

A high ranking catering official. Are you serious?????
since when are mergers decided by catering officials?
LOL LOL LMAO!!!
I've heard it all.

 

[WorldTraveler]

A 15-16 billion dollar offer is a boatload of debt. Whomever lends that kind of money has to be certain the combined airline would be profitable enough to service that debt.

There is no offer that LCC can make that has a large component of debt that will fly.... AMR will still exit BK with $7-10B of debt (all of their newer aircraft in the fleet now are fully mortgaged and they aren't going to write down huge amounts on 738s and 777s which have strong market values). They have $25B of airplane on order - even before something is done to refleet Eagle. They will still have $5-7B in pension funding depending on what plans are kept.
.
Keep in mind that DAL has about $5B of aircraft on order, a couple billion more in pension obligations, and are targeting $10B in debt by next year - which means that they AMR will end up with $15-20B more debt related to new aircraft. UAL has far smaller pension obligations, about the same amount of debt as DL, and about twice the aircraft obligations that DL has but far less than AMR.
There is no way that creditors are going to accept a takeover plan that loads AMR/LCC with even more debt.
.
And that is precisely why if there is any chance that AMR will be acquired it will be by a company whose stock has enough value to do a predominantly stock transaction.
.
You need only look at the CO-UA and DL-NW mergers to see that there is no appetite for taking on debt to fund mergers.
If the deal can't be done on the basis of combining two sound companies with solid proof that the company can service the debt it will assume, the deal won't fly.
AMR is better off as a standalone company than being pushed into a merger where one party can't carry their weight in the deal.

 

[TWU informer]

Many on this forum discount something that Doug Parker now seems to understand.

In the end, the employees make or break a companies survival attempts.

AMR and the Gang of Consultants keep plowing the field without regard to this fact.

 

[BoeingBoy]

They have $25B of airplane on order - even before something is done to refleet Eagle.

You forget the sale/leaseback...converts aircraft debt into cash on the spot. Even at the end of 2010, AA (like about every airline) owned only about half it's fleet. According to the most recent 10K, AA has leases set up for about half of the 460 plane order, worth $13 billion off your $25 billion. As the delivery of the 2nd half of the planes isn't for another 4 or more years, AA has time to figure out the best financing for those planes - mortgages or sale/leasebacks.

Jim

 

[WorldTraveler]

It will come down to how much debt the combined structure would have to end up being saddled with to pay for US buying AA, and the mess with multiple unions as well. Parkers other option would be to merge with, but keeping the companies separate until AA is out of BR and offering stock in the new company to the creditors. Adding true East Coast hubbing from US is the only thing that seems to bring a lot to the table to AA, something they can get without a merger. I'm not sure how the fleet/engine mix works, I'll let someone else decide whether that is a + or -. The real question is whether a combine AA+US scenario is the best competitive solution for AA or not. If AA can exit BR and recapitalize with an IPO without US and quickly implement its business plan, I think that puts US at a competitive disadvantage, meaning between UAL/DAL/AA/WIN/LCC, one of these carriers defaults for good within 3-4 years and without a merger, US would be most at risk..

AA would exit BR with much lower leasing costs and adjusted lease end dates, new fleets and cheap financing already lined up for the first couple of years when the Being orders start arriving, not to mention tying up a lot of manufacturing assembly lines at Being and Airbus. AA's unit costs will be the lowest of the five airlines above. The joint ventures will be in full swing with JAL now fully out of BR and running a lean operation. That sounds pretty good to me.

So then is AA better off independent, or just what else will US bring to the table.

No, Jim, I didn't forget about sale/leasebacks... but $25B worth of aircraft is still $25B regardless of whether it is leased or they take on debt when the aircraft are delivered. AMR's plan as of now is built on a substantial refleet of the airline that even at 50% discounts off list prices amounts to more than $25B... no other airline needs to spend that kind of money to run their airline - and yet people somehow think that AMR will be in great shape with a new generation fleet and a pile of debt so high they will never be able to pay off the debt.
In the meantime, you have airlines like DL who are placing using M90s and potentially 717s in service that are acquired for a fraction of the cost and have very comparable fuel efficiency as the new aircraft AA is buying.
Even WN is nowhere close to committing as much to its refleeting and they are stepping up to much larger aircraft which will drive down their CASM substantially.
AA's idea that they can buy billions of dollars of new aircraft came right out of CO's turnaround plan - but the big difference is that CO used those aircraft to go get NEW revenue. AA is going to spend billions to buy new aircraft to compete on essentially the same network (they think they are going to grow their cornerstones by 20-25% but no one has any idea how that is going to happen, esp. since NY is slot controlled).
.
Another note on labor costs.... AMR reported its salary and benefits at $7B and change - while DL, an airline that generated 45% more revenue in 2011 reported just UNDER $7B in salary and benefits. $1.5B in labor cost cuts at AA will STILL leave them with labor costs no lower than their network peers, including DL who is engaged in a massive early retirement campaign which they say is generating a whole lot of interest. DL will either replace their most senior workers with new hire employees who will cost far, far less OR they will be well-suited to take on thousands of employees from another competitor in a merger. WN's CASM will drop significantly as they put the 738 in service. IN the meantime, AA will be laying off their lowest paid workers (a relative term since most AA employees are topped out although younger employees still use fewer benefits) and cutting salary cuts.
No one seems to be willing to admit that other carriers are aggressively cutting their own costs and are quite likely to ensure that AA does not gain a competitive advantage in BK, even if AA does spend billions on new aircraft.

 

[BoeingBoy]

No, Jim, I didn't forget about sale/leasebacks... but $25B worth of aircraft is still $25B regardless of whether it is leased or they take on debt when the aircraft are delivered.

Well, maybe we can talk about the $72+ billion in contractual obligations that DL is facing...doesn't matter if it's debt or not, right??? It's still money going out the door...

Jim

 

[eolesen]

Another note on labor costs.... AMR reported its salary and benefits at $7B and change - while DL, an airline that generated 45% more revenue in 2011 reported just UNDER $7B in salary and benefits.

I guess you forget that AMR's $7B includes salary and benefits for Eagle, whereas DL only owns Comair (down to around 1000 employees?) at this point.

DL's balance sheet had close to $4B in "Contract Carrier Arrangements" and $1.5B for maintenance parts & outside repairs.

It's a bit specious to only point at the wages & benefits number when they're not the sum of the same parts... You would need to allocate a fair portion of the $5.5B mentioned above in order to get a cleaner comparison of AA's labor costs and DL's labor costs.

Even then it may be a bit of a crapshoot due to the regionals, since some agreements include pass-thrus for landing fees, fuel, real estate, while others don't.

 

[usa1]

Do you care to elaborate on how AA can add "true East Coast hubbing" without a merger?

They tried in RDU and BNA. They failed. It would be even harder today.

 

[AAviator]

Look! up in the Sky!!

Its, It's It's!!! usa1? etops1? USA320Pilot?

 

[PhatSappy]

USAirways could probably buy the "assets of" AMR from the court, integrate routes and equipment as needed and take none of the employees. They have been buying up domains on the internet reflecting possible changes. I bought several of them myself . . .

 

[Kellerguy]

USAirways could probably buy the "assets of" AMR from the court, integrate routes and equipment as needed and take none of the employees. They have been buying up domains on the internet reflecting possible changes. I bought several of them myself . . .

Not going to happen. That would then leave the pension plans in default, a very bad $10B political problem to deal with.